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Abstract:
This study investigates the trade‐off costs faced by private foundations. Findings indicate that foundations perceive distributing funds for charitable purposes as costly and sometimes choose to pay a higher tax rate on net investment income rather than pay higher amounts of qualifying distributions. Foundations also perceive qualifying distributions as more costly in a 'bear' market, which is troublesome given philanthropic need may be the greatest during bear markets. Finally, distributions are perceived as more costly when current year income is insufficient and for older foundations. Policy implications associated with these findings are discussed.

Private Foundations, Qualifying Distributions

Abstract:
We investigate the relationship between private foundation performance and managerial pay. Private foundations are an unusual organizational form in that after the death of the founder, there are no donors or other external constituencies with the power and incentives to discipline management. Therefore, we expect that the pay-performance relationship may be negative. Because the purpose of a private foundation is to generate investment returns to be distributed to charities, we examine investment performance as well as administrative efficiency. Using a large sample of U.S. foundations over the period 1997-2005, we document that the relationship between pay and performance is negative in both levels and changes models and for both administrative and investment performance. Our findings contrast with studies investigating public charities and for-profit organizations which have generally found a positive pay-performance relationship. Our evidence suggests that foundations are often poorly monitored and foundation managers are often rewarded for poor performance. We discuss potential implications for policy makers concerned about foundation governance.

foundations, nonprofit, compensation